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Derek Lowe The 2002 Model

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Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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« But At My Back I Always Hear. . . | Main | Deception Begins at Home »

February 28, 2006

More on Outsourcing

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Posted by Derek

As it happens, I was looking through a recent New England Journal of Medicine yesterday after having posted that comment on outsourcing. (Yes, I do read it, even while whacking its editorial staff over the head about the VIGOR study).

There's a fine perspective in there on medical outsourcing, in this case the use of "nighthawk" firms that provide middle-of-the-night radiological opinions. After all, it's during the working day in Bangalore, and X-ray data is just a mass of binary digits like anything else that zips through the Internet, so why not?

The author lists some of the benefits to this (after all, radiologists need to sleep, too), and possible problems with these services, but concludes:

". . .it is easy to rail against this trend or to pray that it all happens after we retire. And observing the snail's pace of the quality, safety, and information-technology movements in health care one might predict that full-blown medical outsourcing is decades away. But judging by the speed with which high-tech call centers have migrated to Bangalore, the pace of change might actually be shockingly rapid.

People and institutions that are harmed by outsourcing will not take it sitting down, and I expect to see a flurry of initiatives to protect the status quo. Physicians and specialty societies will undoubtedly use the tools of legislation, licensure, certification, and reimbursement to thwart perceived threats to their livelihoods. Such efforts will nearly always be framed as protections of quality or patient safety, though some will be difficult to defend against charges of hypocrisy. . .

Though defensiveness and resistance are inevitable, I believe that a more productive strategy is for local caregivers, advocacy groups, and institutions to welcome - or at least accept - outsourcing that serves their patients' interests and to focus their attention on improving the quality and efficiency of the care they themselves deliver. . ."

Which, when you get down to it, is exactly what I was saying yesterday. I'll reiterate that I'm a free-trade advocate. I think that the free movement of goods and services is vital to economic prosperity. In turn, that economic prosperity is vital to keeping people alive and the world in what peace it has. Bastiat was right: when goods don't cross borders, soldiers will.

My opinions on the subject wouldn't be worth very much if they changed just because my industry is being affected. I think that American research firms can compete with anyone in the world, and if anyone would like to displace us as an engine of innovation, they are most welcome to try. We'll all be the better for it.

Comments (9) + TrackBacks (0) | Category: Business and Markets


1. John Rogers on March 1, 2006 10:35 AM writes...

I often have arguments with people when they learn I am a free trader.

I usually say: imagine a product that is largely produced in foreign countries, with great help from governments who are not our friends. They have subsidized its production and pushed the price so low at times that our domestic producers can't compete, and many have been put out of business.

Should we ban or tariff imports of this product?

The reply is almost always: of course!

That is until they learn the product is oil.

Cheap energy fuels the economy; restricting it because it is produced far away would be suicidal.

And the same can be said for timber. Or steel. Or sugar.

Or drugs.

As a medicinal chemist in big pharma, of course I'm worried. But we - just like auto workers - better learn to do things that justify our paychecks, because competition is coming.

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2. Larry on March 1, 2006 10:38 AM writes...

You should read "The World is Flat" by Tom Friedman. He mentions this exact topic in his book, and says that in the long run, outsourcing these types of jobs will free up the best inus to do more valuable (and productive) work here, whether it is reading X-rays, preparing taxes, or taking your customer service call. Remember, the only constant in the world is change. One can accept it, change and continually learn, become more valuable to your company, or be protectionist and wither on the vine.

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3. Canuck Chemist on March 1, 2006 2:40 PM writes...

There are always growing pains with free trade, to be sure. However, most advocates of protectionist policies assume that the pie will always be the same size, and if Asia takes a bigger slice, then North America will have less to enjoy. Right now the majority of pharmaceutical profits are made in America. Imagine what the profits could be if the majority of Asians had the standard of life (and money to spend) we have in North America? Certainly, there is a lot that will have to change before that will happen, but ultimately we can continue to do well as our neighbours grow.

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4. Doc Bushwell on March 2, 2006 7:19 AM writes...

A few of the sr. management types in research, including my boss, gallavanted through India as they checked out more outsourcing opportunies. Outsourcing of chemical intermediates has been a fact of life at my own wonder drug employer for quite some time. We've branched out, as have other pharmas, to outsourcing protein production. The Bangalore biotechs are a little behind the curve in this area, but eager to learn. My supervisor observed that the Indian companies are risk adverse, and are inclined toward the service industry model rather than full-blown discovery. Entrepreneurial drive in the US/EU coupled with increasingly high quality reagents of various types provided by companies in India and China seems like a good combination to me.

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5. tom bartlett on March 2, 2006 8:59 AM writes...

"Should we ban or tariff imports of this product [oil]?"

Well, I would say we should. Carter had it right; we should try to use trade as a tool to reign in rogue govts.

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6. John Rogers on March 3, 2006 12:21 PM writes...

Tom Bartlett:

So you would tariff oil imports so that our domestic oil men could compete?

Doesn't this strike you as a nice gift to a bunch of Texas oil men? It's at least as much of a gift as huge tax break or a federal subsidy would be.

I'm sure the oil men would like that, but our economy would certainly suffer with much higher oil prices -prices artificially controlled by Washington in the service of a few oil barons.

Are you sure that's what you want?

An overall gas tax might (might!) be a better idea, encouraging conservation while helping to defray the hidden costs of oil.

But it would still mean slower economic growth.

Slower economic growth tends to hurt the poor the most: the unemployed, the line workers and the paycheck-to-paycheck guys.

This is something that Carter fans never seem to care about.

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7. PS on March 3, 2006 10:45 PM writes...

I must say that I find this discussion on outsorcing rather interesting. I was born and brought up in India and came to the US to go to grad school and have been here since. I am really looking forward to see how the whole outsourcing thing works out.

The mood in India is very optimistic now, but most of the companies there have made their money selling cheap generics. While this was a great business model for them, I would like to see how they digest the high failure rates associated with discovery.

On the other hand, If Rishton is to be believed (and I think that he is right on some accounts), an intractable target in the US, will be intracatable in India too - no matter how much cheap labor you throw at it. The big pharmas might save some money sending some disocvery work overseas, but that will not solve the underlying problem facing big pharma. They are too risk averse and to be honest - there are way too many synthetic chemist in upper management who dont quite understand the intricasies of drug development biology.

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8. Jim S on March 5, 2006 11:56 AM writes...

Interesting viewpoints and of course completely wrong. There will be no freeing up of minds to do better work. The better work will be outsourced as well. It is already happening. Companies that as recently as two years ago spoke of keeping research and development jobs in the U.S. are building research campuses in India. They are sending all of their product development work overseas. I am of course speaking of other industries than pharma. I follow the tech companies more.

You speak so casually of growing pains. These growing pains are thousands of people losing their jobs, their homes and having the stress break up their families. The mantra of the supporters of this dislocation is that if they'd just get off their complacent asses and get the right training they'd be able to find another job. Now let's look at the real world. First, isn't that what they encouraged the people who now have the IT jobs that are being outsourced to do just a very few years ago? Secondly, most companies want their people to work enough hours so that they don't have the free time to get any further education on their own time unless of course they completely give up any time with their families so this training must be acquired after their job and income is gone. This of course is a calm, restful time just perfect for the acquisition of knowledge that will be retained to apply to their new jobs. Then again they quite likely can't afford to pay for this training themselves as they try to support their families. And the government is of course more than willing to help them get over this problem...ooops, sorry. That's right, the government is cutting educational aid programs in order to "help balance" the budget because those tax cuts can't be rolled back or allowed to expire can they? In fact more of them need to be passed.

Let's face it. What we're seeing now can't be equated with any previous experience. It is only a possibility that the education you go out and get might help get a job. And the training that we're talking about lasts a lot longer than unemployment checks. It will almost inevitably take over a year. I have a friend who followed all that wonderful advice that the pompous prognosticators dole out. He's still looking for a job 8 months after finishing his training. Did he do badly in it? No, his achievements in class after class were fantastic. I think it traces to one cataclysmic event that occurred while he was furthering his education. His fiftieth birthday. Toss 'em on the trash heap, baby. They're only working people who want to make a living.

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9. Vic Verghese on May 12, 2006 7:46 AM writes...

Being in India, we keep hearing about the medical processes outsourcing to India...I guess the trend has just started, and naturally, most Indians are hoping that this goes exactly the way call centers went - that is, got "bangalored"...

I had been earlier working in the UK for a while and many of my British colleagues asked - though politely - what my opinions were on offshoring to India. I told them - hopefully equally politely, because it is difficult to be as polite as the British!- that while personally I sympathised with a majority of my colleagues' views on offshoring to India, we all might as well get used to it. And I think all of them, to their credit, admitted that was the best recourse.

Your point about America ( and perhaps quite a few other developed nations) focussing more on going up the value chain and becoming the loci of innovation is definitely concern is that it could take a while before the effects of this shift starts trickling down to the American masses...let's only hope that this time lag is not too long


Vic, Castor Oil Online

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